WSFS Financial Corporation announced a series of actions resulting from the enactment of the federal Tax Cuts and Jobs Act, and other decisions that will affect earnings for the fourth quarter of 2017.
The charges will reduce earnings by nearly $23 million.
These actions include writing down a deferred tax asset, the planned surrender of bank-owned life insurance (BOLI) policies, a fraud loss charge, and a grant to the WSFS Foundation.
“The enactment of recent tax reform legislation along with continued strong core performance, positions us to further invest in our business and the communities we serve,” said Mark Turner, CEO, WSFS Bank. “These decisions will also enable us to focus our attention in 2018 on key performance metrics and exceeding goals set in our Strategic Plan.”
The impacts to earnings described in this release are preliminary estimates and subject to additional procedures which could result in material changes to the preliminary estimated impacts to earnings noted below.
The enactment of the bill resulted in changes to the U.S. tax code, including a reduction in the top corporate income tax rate from 35% to 21%, effective January 1.
As of September 30, 2017, WSFS had a net deferred tax asset totaling $29.4 million. As a result of the reduction in the corporate income tax rate, WSFS is required to revalue its tax asset.
WSFS estimates the revaluation will result in an incremental income tax charge of approximately $12-$13 million in the fourth quarter of 2017.
In light of the current higher interest rate environment, the lower corporate tax rate, and the tax-equivalized yield on its Bank-Owned Life Insurance (BOLI) investments, WSFS will surrender all BOLI policies in 2018, as the returns on such policies no longer add to earnings and come with administrative complexities. Also a majority of those insured are no longer current associates. WSFS will take an $8 million charge in the fourth quarter of last year..
WSFS will record a pre-tax operating expense of approximately $2.8 million from a fraud loss in the fourth quarter of 2017, resulting from a scheme to defraud the bank that was previously reported in regulatory filings.
The previously viable business loans associated with this relationship became delinquent when the individual decided to immediately wind-down and liquidate the assets of his business due to the significant reductions in revenue that occurred once the indictment was made public.
WSFS is pursuing all available remedies, including working with insurance carriers to recoup the loss and believes it has a strong case for recovery in 2018.
The identity of the company was not disclosed, although it was reported last year that a Cecil County doctor and medical building owner was accused of a loan scheme.
The company also made a $1.5 million (pre-tax) grant to the WSFS Foundation in the fourth quarter of 2017.
This generational donation matches the only other grant made to the Foundation when it was formed in 2003. The grant will help fund the next generation of improvements in the communities served by WSFS Bank.
The WSFS Foundation primarily focuses on educational programs for children in grades K-12 who live in underserved communities and who attend public schools.
WSFS Financial Corporation has $6.88 billion in assets on its balance sheet and $18.07 billion in assets under management and administration. WSFS operates from 77 offices located in Delaware (46), Pennsylvania (29), Virginia (1) and Nevada (1).
Other subsidiaries or divisions include Christiana Trust, WSFS Wealth Investments, Cypress Capital Management, LLC, West Capital Management, Powdermill Financial Solutions, Cash Connect®, WSFS Mortgage and Arrow Land Transfer.